One of the consequences of e-commerce is that B2B customers can easily shop around from the convenience of their cubicles or offices, bid on products, and read blogs about products from industry experts. That’s what buyers generally do before they get on the phone or personally meet with sellers. E-commerce has made it especially easy for buyers to compare prices. And the cheapest price often attracts the most attention.
The result is that B2B sellers (and B2C sellers) have found their ability to raise prices limited. The problem is more acute when products are very similar to one another (commodities) and B2B auctions and exchanges are utilized. If you are a buyer of chemicals looking for a supplier on ChemNet, do you want to pay more for one brand of a chemical that has the same molecular formula as every other brand? Maybe not. However, if you believe you can get better service from one company than from another, you might pay more. “Everything has become much more of a commodity, commodity meaning that it’s basically more and more about price,” says Kohler about e-commerce competition. “So my challenge as a distributor is that I have got to constantly find new ways to try to create value for Hubert’s customers.”
To avoid e-commerce price wars, some companies refuse to sell their products directly online or put prices on them. Snapper products are an example. Go to Snapper.com, and you will find a lot of information about Snapper mowers and snow blowers online and dealers where you can buy them. But you won’t see any prices listed. Nor can you buy a product directly from the Web site.
Firms in the same industry tend to cluster in the same geographic areas because the resources these firms need—both human and natural—are located in some areas and not others. Sellers also want to be close to their buyers. E-commerce, or commerce conducted electronically such as over the Internet, has made locating near buyers less important for business-to-business sellers and opened up opportunities for them to sell their products around the world. However, e-commerce has also led to more competition and made it difficult for sellers to raise their prices. B2B e-commerce was slower to take hold than B2C e-commerce. Companies have since developed sophisticated e-commerce systems, including sell-side and buy-side Web sites, exchanges, and B2B auctions.
- Name some other industries you’re aware of in which companies tend to cluster geographically. Why are the companies in these industries located near one another?
- How do B2B exchange sites differ from B2B auction sites?
- How can firms that sell their products on the Internet prevent their prices from being driven down by competitors?